If an IRA owns an interest in an LLC, is this a prohibited transaction

[Guest Tara Curran]

We have an LLC that has an IRA as a 4.167% investor member. The beneficiary of the IRA is also a common member with a .09% interest in the LLC. He does receive compensation from the LLC and participate in management. Does this constitute a prohibited transaction?

[QDROphile]

You are in a grey area with respect to prohibited transactions. The standard advice is never have your IRA invest in your employer or a company in which you have a separate ownership. You need sophisticated advice to reach a conclusion.

You didn't ask, but it is likley that the IRA has UBTI from the investment in the LLC if the LLC is an operating business.

Bad news all around on this situation.